Federal appeals court rules against doctors, patients in Oklahoma Medicaid pay suit

In spite of the setback, physicians say the case has shed light on the program's deficiencies and has led to increased reimbursements.

By Amy Lynn Sorrel — Posted Jan. 29, 2007

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A federal appeals court rejected physicians' and patients' claims that Oklahoma officials violated the Medicaid Act by underfunding the state's program. But doctors say the ruling will not undo the positive changes the case generated.

The 10th U.S. Circuit Court of Appeals overturned a 2005 trial court ruling that found the Oklahoma Health Care Authority set physician reimbursements at such low levels that not enough pediatricians and specialists were available to provide needed services. The lower court found that the insufficient rates violated the Medicaid Act's equal access requirements by depriving low-income children of their right to prompt care.

But a three-judge appeals court panel concluded in a Jan. 3 opinion that the federal law "simply requires a state Medicaid plan to provide 'medical assistance' ... in other words, [it] requires a state Medicaid plan to pay for all such medical services, not, as plaintiffs suggest, to directly provide for them."

Judges said the doctors and patients who brought the class-action lawsuit did not have the right to sue to enforce the law. Doctors say this leaves them little recourse to ensure that states comply.

The Oklahoma Chapter of the American Academy of Pediatrics, with the Community Action Project of Tulsa County and several Medicaid recipients, sued the state in 2001.

"The important thing is this suit brought up an undeniable problem, and regardless of what the appeals court said, it drew the [Oklahoma] Legislature to an honest appraisal of what was going on," said American Medical Association President William G. Plested III, MD.

The AMA/State Medical Societies Litigation Center, the American Academy of Pediatrics and the Oklahoma State Medical Assn. jointly filed a friend-of-the-court brief supporting the plaintiffs.

In 2005, U.S. District Court Judge Claire Eagan ordered Oklahoma Medicaid officials to raise reimbursements for covered, medically necessary physician services for underage beneficiaries to at least 100% of Medicare's rate. When the case was tried, the program paid between 72% and 90% of Medicare fees, state officials said. The court also required the state to hire a consulting firm to determine sufficient rates for long-term compliance with the Medicaid equal access provision.

The decision prompted the Legislature to authorize an additional $27 million to fund the Medicaid program.

"That legislation is in effect and is going to affect millions of kids for years to come," Dr. Plested said.

OKAAP President Michael F. Stratton, DO, said the case had led to increased Medicaid participation by physicians. The state action also put OKAAP, along with OSMA, at the table with the Oklahoma Health Care Authority as part of a medical advisory committee to improve access to care for children on Medicaid.

Dr. Stratton disagrees, however, with the appeals court's narrow interpretation of the statute as limiting the state's responsibility just to paying for doctors' services in a prompt and reasonable manner.

The equal access provision requires that "a state plan for medical assistance must ... assure that payments are ... sufficient to enlist enough providers ... to the extent that such care and services are available to the general population in the geographic area."

Doctors fear that the appeals court decision lets state officials off the hook because it maintains that Medicaid beneficiaries and physicians cannot sue to enforce the law. W. Frank Phelps, MD, OSMA interim executive director, said that diminishes doctors' and patients' ability to hold the state responsible and challenge low fees.

"Cooperation with health care authorities could decrease, and reimbursements will fluctuate based on the amount of money they have, not the need of the population," he said.

OKAAP's Dr. Stratton said the groups are still deciding whether to appeal. In 2005 the trial court dismissed OKAAP from the lawsuit, saying it did not have standing to sue on behalf of Medicaid patients. The 10th Circuit Court did not rule.

"State Medicaid agencies have to have some accountability for what they do," he said.

Howard Pallotta, general counsel and director of legal services for the Oklahoma Health Care Authority, praised the changes spurred by the case. "The state always had the intent of paying adequate rates, and this decision is not going to have us go backwards," he said.

Pallotta disputed any violation of the law and argued that the delays children experienced in getting appointments was from a shortage of specialty care, not reimbursement rates. The program has built-in remedies, instead of lawsuits, to address doctors' and patients' concerns about claims or services, he added.

"A program as complex as Medicaid should be left to the federal and state government to run," Pallotta said.

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Case at a glance

Oklahoma Chapter of the American Academy of Pediatrics, Community Action Project of Tulsa County, et al. v. Michael Fogarty, CEO of the Oklahoma Health Care Authority

Venue: 10th U.S. Circuit Court of Appeals
At issue: Whether the Oklahoma Medicaid program violated the equal-access-to-care requirements for poor children because of insufficient physician reimbursement rates. The appeals court said no.
Potential impact: Doctors and state officials both say the case prompted the necessary funding to improve Medicaid physician participation and patient access to care. Doctors still worry that if they cannot sue to enforce the law, they will not be able to hold the state accountable.

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